Thursday, January 6, 2011

ASK AND YE SHALL...

...receive an answer from my really smart friend, Larry, on what I believed to be the curious policy of the Chinese in regard to the holding of Yuan in Hong Kong. Larry points out that there is really no natural flow of Yuan into the market, so if the Chinese through the People's Bank of China ("PBOC") funds this one-way trade, then it becomes really a selective inflow of dollars to off-set the Yuan outflow or a straight creation of money from the reserves which the Chinese--unlike other central banks who will remain unnamed--think is nuts. Larry thinks it's just a political gambit to freak out the U.S. at this stage.

Disagreeing with Larry is generally a mug's game, but I just don't understand this latest round of Obama-baiting although there is a fun element to it and God knows it's easy enough to do if that's what it's all about. Granted, that the creation of off-shore owned Yuan assets is an artificial condition and will remain as such until the Chinese run a trade deficit (not tomorrow's news my friend), it seems to me that twisting Uncle's tail can be better accomplished by a continuation of the on-going policy which seems to be the creation of a currency in competition to the dollar without these murky steps. Then again, there is a deliciousness about it that smacks of the mysterious east. Clever, these Chinese. Time, which the Chinese believe is always on their side will tell. And speaking of time, I'm going to cut this one short. Love to hear more thoughts on the above subject. Back tomorrow.

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